The International Monetary Fund (IMF) downgraded its outlook for global growth on October 9. It now expects global growth to plateau at 3.7% in 2018 and 2019, which is down from the original 3.9% estimate in July. The report stated that the U.S.-China trade war had an impact on its readjustment, as well as the slowing of emerging markets as seen in Turkey and Brazil.
With this in mind, investors may want to avoid the iShares MSCI Emerging Markets ETF (TSX:XEM) for the rest of 2018, and perhaps beyond if conditions worsen. The ETF dropped 0.9% on October 11 and is down 13% in 2018 so far. Now the state of Pakistan is also facing a large fiscal and current account deficit that has sent its currency into turmoil.
What started out as a promising year for emerging markets, especially in comparison to their sluggish North American counterparts, has spiraled into disaster. Emerging markets now threaten to be a drag on global growth just as developing economies are set to drop below 2% growth in the next decade. Exploding trade tensions across the globe is also a gigantic risk going forward.
Investors would be better served by looking elsewhere in late 2018 and likely into 2019. It is also worth monitoring the future global growth outlook to spot any downward revisions.
